1. Disposal Gains in Tiered Partnerships: BFH Provides First Clear Guidance on Trade Tax Treatment 

Background

When a corporation sells its interest in a partnership, the resulting trade tax under Section 7 sentence 2 of the German Trade Tax Act (GewStG) does not arise at the level of the selling corporation—where the gain is economically realized—but rather at the level of the partnership itself. This means the trade tax is not borne by the party earning the gain, but by the entity being sold. As a result, the trade tax burden falls on the other (often uninvolved) partners of the partnership. To address this economic mismatch, many partnership agreements include so-called “trade tax allocation clauses” under which the economic burden of the tax is shifted to the seller.

What happened? 

On May 8, 2025, the German Federal Fiscal Court (BFH) issued its first rulings on the trade tax treatment of disposal gains in multi-tiered partnership structures in the combined cases IV R 40/22 and IV R 9/23. In the cases, a corporation (a foundation) sold its interest in an upper-tier partnership. The BFH held that the resulting gain is not to be split proportionally between the upper-tier and lower-tier partnerships based on hidden reserves (“no look-through”). Even to the extent that the economic value of the gain reflects hidden reserves at the level of the lower-tier partnership, no deduction under Section 9 no. 2 GewStG is allowed. Instead, the gain constitutes a single disposal transaction attributable solely to the upper-tier partnership.

The BFH thereby confirms the prior view of the tax authorities. The decision also brings alignment between income tax and trade tax treatment: the BFH (Grand Senate) had previously denied a “look-through” approach for income tax purposes as well.

Who is affected?

• Corporate groups with multi-tiered partnership structures (including but not limited to mid-sized companies and family offices).
• Planning strategies that intentionally generate profits or losses at different entity levels.
• Structures aiming to benefit from deductions under Section 9 no. 2 GewStG.

What should companies do now?

Review your structure: Assess the potential trade tax impact of this ruling over the investment life cycle and in connection with exit scenarios. Analyze the position of gains and losses at different levels of the structure.

Monitor contractual provisions: Examine existing trade tax clauses in partnership agreements for consistency with the new BFH decision. Where necessary, implement arrangements between upper- and lower-tier partnerships to neutralize trade tax consequences (e.g., via offsetting clauses). 

2. CJEU Confirms: Denial of VAT Deduction and Joint and Several Liability in Cases of VAT Fraud Are Compatible

What happened?  

On July 10, 2025, the Court of Justice of the European Union (CJEU) ruled in the case C276/24 (KONREO) that national tax authorities may both deny input VAT deduction and impose joint and several liability for unpaid VAT by the supplier on a company involved in VAT fraud.  

The underlying case concerned a Czech company that had purchased fuel from a supply chain involved in VAT fraud. Although, the input VAT deduction had already been denied, the authorities also demanded payment of the VAT that the supplier had evaded. The referring court questioned whether this double burden was compatible with the principle of proportionality under EU law. 

The CJEU clarified: As long as national law provides for such a mechanism, EU law – specifically Article 205 of the VAT Directive – does not preclude the cumulative application of input VAT denial and liability, provided the taxable person knew or should have known that they were part of a fraudulent supply chain.  

Who is affected?  

• Businesses with complex or cross-border supply chains.  
• Recipients of goods or services in high-risk sectors (e.g., fuel, electronics, construction).  
• Taxpayers exposed to an increased risk of supplier fraud.  

What should businesses do?  

• Carefully document suppliers and payment flows.  
• Identify indicators of lacking economic substance.  
• Regularly review supporting documentation and accountability structures.  
• Raise awareness in procurement departments about tax-related risks.  

The judgment makes clear: Tax risks in cases of VAT fraud can accumulate – even if the tax claim is not directly addressed to the recipient. 

A&M Tax Contact: Matthias Luther 

Source: ECJ, judgment of July 10, 2025 – C-276/24 (KONREO)

https://curia.europa.eu/juris/document/document.jsf?docid=302378&doclang=DE